Sichuan Teway Food Group (603317)

Equity Research 18 September 2026 | 9:00PM HKT

Sichuan Teway Food Group (603317.SS): 2Q26 Review: Continued recovery in 2Q with support from increased A&P investments; factoring

Teway reported 2Q26 results on Aug 25, with 1H26 sales/NP at Leaf Liu | Rmb2,028mn/Rmb381mn, up 46%/100% yoy. 2Q26 sales/NP up 20%/up 13% yoy Goldman Sachs (Asia) L.L.C.

to Rmb897mn/Rmb131mn despite a tough base (+22%/+63% yoy in 2Q25). 2Q26 Christina Liu | sales beat GSe (at +11% yoy) while NP came right in line due to OPM contraction Goldman Sachs (Asia) L.L.C.

(-1.4pp yoy) on higher-than expected selling expenses more than offsetting Valerie Zhou | better-than-expected sales/GPM. NPM recorded 14.6% in 2Q26, down 0.8ppt yoy, Goldman Sachs (Asia) L.L.C. with a lower ETR at 15.3% (down 2.2pp yoy). Key surprises: 1) Significant sales beat: 2Q26 revenue came better than expected at Rmb897mn (+8% vs. GSe), driven by robust sales growth across product categories, particularly hotpot condiments (+11% yoy) and Szechuan-style compound condiments (+14% yoy) with contribution from Yipinweixiang consolidation (from Sep 2025). Excluding contribution from all acquisitions (Shicui/Jiadianziwei/Yipinweixiang), the organic sales grew by +36% in 1H26, still posting a strong rebound (vs. teens% sales decline in 1H25). 2) Notable gross margin expansion: GPM of 38.9% beat GSe by 1.8ppt on operating leverage, cost tailwinds, and favorable mix shifts; though OPM of 17.2% missed GSe by 0.7ppt, as selling expenses stepped up to Rmb127mn (14.1% of sales vs. 10.0% and Rmb75mn in 2Q25) mainly on A&P spending to support sales growth, likely a substantial part spent on investments behind acquired brands, considering that excluding all acquisitions, net margins of core business grew from 14.2% to 22.7% in 1H26, expanding by 8.5pp YoY.

Positive read-across to Yihai (Buy-rated): We believe Teway’s strong beat further supports a continued resilience, tangible recovery and penetration in compound condiments, with Teway’s organic hotpot/compound-condiment sales and Yihai’s third-party business both growing DD% YoY in 1H26 despite still-muted catering demand, together with Yihai sustaining DD% growth in Jul-Aug.

Earnings Revision and TP change: We revise up 2026-28E sales forecast by 3~4% to factor in better-than-expected compound condiment sales recovery momentum and contribution of Tantanxiang (P&L to consolidate from Jul 2026, Rmb305mn/Rmb59mn sales/NP in 2025). Our earnings forecast rise by c.3% factoring in higher GPM and admin expense discipline offset by increased sales expense investment in growth. Our 12-m TP is up to Rmb12.4 from Rmb12.0 prior with unchanged valuation assumptions. Maintain Sell.

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Goldman Sachs Sichuan Teway Food Group (603317.SS)

Source: Company data, Goldman Sachs Global Investment Research

Source: Company data, Goldman Sachs Global Investment Research